Quick View: Brexit White Paper Brings Reassurances For Carmakers

The UK government's White Paper on its proposed future relationship with the EU should bring reassurances for the Autos sector on key issues such as free trade and type approvals. This should ensure no major shocks to the UK market through inventory disruption and we have maintained our forecasts for now.

The Latest: The UK government has published its long awaited White Paper on the proposed future relationship with the European Union (EU) following the UK's withdrawal in March 2019. The document covers the economic, security and institutional pillars of the relationship and more specifically for the Autos sector, it covers proposals on vital areas such as free trade and type approvals of vehicles.

Implications: Uncertainty around the future trade relationship between the UK and EU has been a major barrier to planning and investment for carmakers and suppliers. According to the Society of Motor Manufacturers and Traders (SMMT), investment in the autos sector fell 33.7% in 2017, mostly due to Brexit uncertainty. However, the White Paper lays out the government's aim to maintain frictionless trade with the EU, citing its recognition of heavily integrated supply chains in manufacturing industries. It is also proposed that both sides will recognise one type approval for vehicles sold in either market, without the need for approval to be gained on each side. This will also reduce red tape and cost, ensuring smoother trade between the two sides.

This is not only positive for manufacturers, but should also limit disruption to inventories for the UK market, given that over 80% of vehicles sold in the UK are imported and almost 70% of those imports come from the EU. As such we are not making any changes to our UK sales forecast on the back of these proposals, but reiterate that downside risk comes from the prospect of a final agreement not being reached ( see ' 'Cliff Edge' Brexit Scenario: Severely Damaging For Autos Before Redirection', November 9 2017).

Single Market Access A Key Issue

Vehicle And Parts Trade Between UK And EU, % Of All Trade

Source: SMMT

What's Next?: The mantra that 'nothing is agreed until everything is agreed' is still very much in play, and the proposals in the White Paper still have to be negotiated with the European Commission (EC) with no guarantee of acceptance. There are also domestic risks as Prime Minister Theresa May comes under increasing pressure from ministers on both the pro-Europe and pro-Brexit sides of the Conservative party to deliver the kind of Brexit they want. The next key milestone is the UK's parliamentary recess due to begin on July 24. The EC will have between then and September 4, when the House of Commons returns, to agree to a deal that May can present at her party conference in mid-September ( see 'UK PM Safe For Now, But 'Soft' Brexit Entails Its Own Risks', July 10).